Determining the price movement is a crucial thing in trading. The entry and exit points in the market depend upon how the price movement is going. These movements make the market either Ranging or Trending.
The market is said to be Ranging when the price moves back and forth between a lower and a higher price. The higher price becomes a resistance as it does not let price exceed it, while the lower price becomes a support which does not let price fall below it. The price is in a ranging environment when it moves sideways between higher and the lower price.
The market is said to be Trending when the price is moves in a single direction, either upwards or downwards, but never moves sideways.
Or simply, the market is trending higher when it is making higher lows and it is trending lower when it is making lower highs.
So by connecting the immediate high and low price actions, you can easily determine the market trend. Connect the falling highs of the price by a downtrend line. This indicates the downtrend and here using the trend line [Fibonacci levels] as entry points you can aim for lower lows. And on the contrary side, connect the rising lows of the price by an uptrend line. This is an indication of uptrend in market and you can use the trend line as entry point, aiming the higher highs.
It is important to note here that if you connect these highs and lows horizontally, it would point out the sideways movement of price, which, as mentioned earlier, is known as Ranging. You can use the range limits, i.e. the support and resistant levels as your entry points so you catch the bounces and aim for the profits on the opposite side.
However, if the highs or lows are connected by horizontal lines, it means that the market is ranging or moving sideways. The range boundaries or support and resistance levels can be used as entry points to catch bounces and one can aim for the opposite side of the range as profit targets.
Average Directional Index (ADX)
Technical indicators are an effective way to know the market trends. ADX is widely used index which helps in identifying the sideways price movement. The ADX below 25 implies that the market is ‘ranging’ and if it is above 25, it means the market is trending.
Moving Average is yet another technical indicator which comes handy when market trend is to be determined. The market is trending higher when the lowest moving average goes on top and the highest moving average hits the bottom and it is trending lower when the highest moving average goes to top whilst the lowest moving average hits the bottom.
One more indicator is the Bollinger band, a technical analysis chart indicator. The band expands when the market is trending and contracts when it is ranging.
Above it is the Stochastic which helps in knowing where the trend might end. It shows the ‘overbought’ and ‘oversold’ situation of the market on a scale ranging from 0 to 100. Simply, it can even be used as an indicator of sudden price fall or rise. When the Stochastic lines go beyond 80 it indicates the overbought market situation and price can bounce back from resistance. When its below 20, it means it is an oversold market. This indicates that there are chances of price bouncing back from the support price.
All indicators have mathematical formulas. If you are confused in reading charts then you can get same result from MicroSoft Excel also. All Premium Software at McxNiftyTips.com are designed on such combination of various powerful indicators and you get exact entry target and stop loss. All Software are designed specially for Indian markets and combination of indicators in software is done as per Indian markets movement.